Pre-Paid Wireless Plans: Beware 8 Gotchas

Maybe your family circle includes teenagers who talk too much on their cell phones or elderly parents on limited incomes. If that’s the case, you might consider a pre-paid wireless plan—an option that’s been growing in popularity lately, due to the recession and a wider availability of options. Done right, these plans can be real money savers. But done wrong, there are a number of ugly gotchas that can make you sorry you listened to the hype and bought your phone at Wal-Mart or the neighborhood Qwik-E-Mart.

[For more information on what pre-paid and pay-as-you-go wireless plans have to offer, see Why No-Contract Wireless is on the Rise. ]

I spent some time last week talking with experts at the California Public Utilities Commission and the San Francisco-based consumer-advocacy group The Utilities Reform Network, or TURN. I came away from those conversations thinking that wireless customers, sick of being hit with sky-high voice bills, are turning to pre-paid plans before getting the real scoop.

“For some consumers (pre-paid plans) are a great thing. “But you have to go in with your eyes open and be sure you’re getting the deal you expected to get,” says Bill Nusbaum, managing attorney for San Francisco-based TURN.

So here are eight factors that you should think about before signing up for a pre-paid plan.

1. What’s the coverage area and are there roaming charges?

This is one to really watch. Some pre-paid wireless vendors offer service in a very limited area. But if you need to call elsewhere it may not be possible, or you could be hit with a very stiff roaming charge. What’s more, the provider may not have a very robust network, meaning your call quality could be poor, or the phone may not work in your home or office because it’s in a dead zone.

2. What do the minutes really cost?

Some plans simply won’t let you make any more calls when you run out. But others keep the meter running at a much higher rate—and that can cost you as much as 45 cents a minute. Can you text, and if you can, what does it cost?

3. How good is the phone?

The phones that come with those pre-paid plans have gotten better, but you’re probably still buying a fairly low-end handset. How’s the sound quality? Are the keys responsive, and is the phone set up to send a text message without your constantly having to use a function key to toggle between numbers and text?

4. Can you keep your cell phone number?

Wireless providers are supposed to provide “number portability,” which means you can move your cell phone number from one carrier to another. But despite those regulations, some wireless companies will tell you that they simply can’t (or won’t) do it. That’s okay if you’re a criminal needing untraceable calls, but for the rest of us, it can be a problem.

5. Are you protected against unauthorized charges?

Sometimes even a major carrier will inadvertently (I’m giving them the benefit of the doubt here) slap a charge on your bill that you never authorized. And if you pay attention, it’s generally possible to get them reversed.

But a much nastier problem is caused by third-parties, many of whom have close business relationship with wireless providers, says Nussbaum. For example, you think you’re downloading a free ring tone and it turns into an expensive recurring charge. If you’ve paid cash for the service, you won’t get a bigger bill, but those charges can be counted against your minutes. If you’ve used a credit or debit card to pay, the charges will be billed to you.

That practice is known as cramming, and it’s likely to become even more troublesome when U.S. telecom companies imitate their European and Asian counterparts in implementing applications that allow consumers to use cell phones as virtual credit cards. Imagine going over your bill every month and seeing lots of small charges and trying to remember which ones you really authorized. With a prepaid plan, you probably won’t even get a bill and won’t know that you’ve lost minutes to a crammed charge.

6. Can you complain to anyone?

Although I’ve dished out lots of criticism of AT&T, Verizon and T-Mobile over the years, those big carriers do have customer service reps you can call. It may not be easy, but at least you have a shot at getting your complaint resolved. But buy a no-name phone from a corner retailer, and there’s literally no one to ask about details of the service, let alone to handle a serious complaint.

7. What does it cost to reload minutes onto the phone and how easy is it?

If you’re comfortable with consumer electronics, that’s not a problem, but for someone who isn’t, going up on the Web to handle that chore can be difficult.

8. What’s the return policy?

If you sign up for the service, and you hate it, or the phone performs poorly, can you back out, or at least get a replacement handset without jumping over an impossible high bar?

San Francisco journalist Bill Snyder writes frequently about business and technology. He welcomes your comments and suggestions. Reach him at bill.snyder@sbcglobal.net.

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